Friday, September 16, 2011

I think Krugman is starting to get it...

A sovereign nation can never go broke in it's own currency. It can simply create it. Only desperate  governments like Zimbabwe's will print notes and flood their economy because their banks have collapsed after robbing the white guys who knew what the fuck they were doing.

After all is said and done inflation and small budget deficits are  a sign that the economy is working, and hyperinflation can only occur if the sovereign nation's central bank refuses to stop the inflation with increasing interest rates, government corruption is rampant, no effective tax collection, (as in Greece) or if the sovereign nation gives up it's money to foreign bankers, ala Europe today and last but not least if the officials start printing currency and  give it to their favorites!

An Impeccable Disaster - NYTimes.com
Now, a country with its own currency, like Britain, can short-circuit this process: if necessary, the Bank of England can step in to buy government debt with newly created money. This might lead to inflation (although even that is doubtful when the economy is depressed), but inflation poses a much smaller threat to investors than outright default. Spain and Italy, however, have adopted the euro and no longer have their own currencies. As a result, the threat of a self-fulfilling crisis is very real — and interest rates on Spanish and Italian debt are more than twice the rate on British debt

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